Pension firms have been warned by the Government’s watchdog that they could
have their trustees removed if they fail to come clean about hidden charges.

Millions of people saving into private pensions are routinely hit by hidden levies, which typically wipe more than £100,000 from the value of a middle-class worker’s pension.

Pension companies have pledged to clean up their act and implement a raft of self-governing codes of conduct that will allow savers to see where their money is going.

However The Pensions Regulator has warned that failure by firms to self-regulate will result in it taking its own action against them.

The watchdog has the power to ban people from being trustees of schemes. It can also order schemes to improve the way they act towards savers.

The warning shot is the latest example of pressure being applied to pension companies. In the summer Steve Webb, the Pensions Minister, announced a “clampdown” on hidden charges and said that he would put a cap on the fees companies charge if necessary.

Bill Galvin, the chief executive of the Pensions Regulator, said that pension charges are currently “too opaque”.

In an interview with The Daily Telegraph he said that he will give firms the chance to put their houses in order. However failure to do so will lead to the watchdog using its “pretty significant powers” to compel them to change.

“First things first, we’ve got to have transparency. There has been really good progress from the industry there in terms of intentions,” said Mr Galvin.

He said: “Our focus will be on saying to people who run pension schemes – trustees or providers – if you are going to be compliant with our principles you are going to need to demonstrate transparency.”

However he warned that if the voluntary codes currently being worked on are not sufficient then the regulator “might have to just come up with something ourselves”.

Mr Galvin said that the watchdog can ultimately appoint, remove or prohibit people from being trustees of pension schemes. It can also issue them with so-called ‘improvement notices’ that force them to alter their practices.

“That gives us a fair amount of leverage on sitting down with trustees and discussing how they are running a pension scheme,” he said.

Mr Galvin said that the preferred course of action is for the industry to regulate itself.

“We would not want to reinvent the wheel if the industry is going to come up with [its own] good disclosure option,” he said.

There are currently three codes of conduct being drawn up by various pension industry bodies. All the codes are aimed at giving greater transparency to savers.

The codes are being developed by the Association of British Insurers (ABI), the National Association of Pension Funds (NAPF) and the Investment Management Association (IMA).

Mr Galvin said: “If disclosure works effectively through those three formats then we would be in a much better place than we are now.”

He said: “Let’s assume that these things get produced and they are to a standard that we expect. Then the industry is providing the tools and it will help us with an oversight role.”

Trust in pensions is at an all-time low. Figures released this week by the Office for National Statistics (ONS) revealed that the number of private sector workers saving into a workplace pension has fallen to 2.9 million, the lowest level since 1954.

The Telegraph Investor

Editor's comment:

Priced to be great value for new investors and those with large portfolios.